Comerica Economic Weekly

Economic data released in the last week of May highlight ongoing improvement in U.S. housing markets within the context of a broader economy that is growing only moderately through the second quarter. The Case-Shiller 20-City Composite House Price Index for March shows a 10.9 percent increase over the previous 12 months. All 20 cities in the index are showing year-over-year price gains led by Phoenix which is up 22.2 percent over the last year. Real gross domestic product growth for the first quarter of 2013 was revised down slightly to a 2.4 percent annual rate. We expect to see a step-down in real GDP growth to near 2.0 percent for the current second quarter.

Initial claims for unemployment insurance for the week ending May 25 increased by 10,000 to hit 344,000. Initial claims have been somewhat volatile recently but the overall trend still looks positive and consistent with moderate job growth in the neighborhood of 165,000 for May. The Pending Home Sales Index for April gained 0.3 percent.

Income and spending data for April show that growth in real income and real spending cooled through the first quarter of 2013 and started the second quarter barely positive. Nominal personal income was unchanged in April with no help from stagnant wage and salary income. After adjusting for declining prices and taxes, real disposable personal income gained a weak 0.1 percent for the month. The PCE price index declined by 0.3 percent in April due to falling gasoline prices. The core PE price index, which excludes food and energy, was unchanged in April. Over the last 12 months, the PCE price index is up just 0.7 percent while the core PCE price index has gained 1.1 percent. Nominal consumer spending declined by 0.2 percent in April. Real consumer spending gained 0.1 percent for the month, the weakest gain since Hurricane Sandy washed out auto sales last October.

Beyond just soggy numbers, the April income and spending report has implications for near-term monetary policy. The FOMC next meets over June 18 and 19. It is shaping up to be a key meeting, with growing expectations that the Fed is contemplating tapering down its current program of asset purchases. We may also soon see revised forward guidance about the overall exit strategy from extraordinary monetary policy. Some fed officials favor beginning the tapering of QE as early as the June meeting. Others remain concerned about weak job growth and lower-than-expected inflation. The soggy income and spending report appears to tip the balance in favor of those who would prefer to wait to begin the taper until the economy shows more strength. Expect no taper in June. Consumer Sentiment for May jumped up according to the University of Michigan.

For a PDF version of this Comerica Economic Weekly with tables and charts, click here CMAEconWeekly053113 .